Price dispersion and inflation: New facts and theoretical implications
Journal of Monetary Economics, 2020, vol. 114, issue C, 59-70
In workhorse macroeconomic models, price dispersion is a central determinant of welfare, the cost of business cycles, optimal inflation, and the tradeoff between inflation and output stability. While price dispersion increases with inflation in the models, this relationship is negative in the data—due to sales prices. The comovement of price dispersion and inflation for regular prices is positive. A model with sales can quantitatively match the comovement in the data, whereas a range of similar models without sales cannot, even for regular prices. These findings have important implications for welfare calculations, optimal inflation, and the effects of monetary shocks.
Keywords: Inflation; Price dispersion; Sales; Sticky prices; Welfare (search for similar items in EconPapers)
JEL-codes: E31 E37 E40 E52 E58 (search for similar items in EconPapers)
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Working Paper: Price dispersion and inflation: new facts and theoretical implications (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:114:y:2020:i:c:p:59-70
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